FiscalConservative: "would you be more productive over the course of your life if you were less educated?"

I could have done without about 90% of my education as far as my productivity on or off the job is concerned. I value that education because it has made me a better person, not because it did anything for my productivity. As for the math, show me a company that uses any calculus whatsoever. I have spent the past decade trying to get companies to use simple regressions and they absolutely refuse. And frankly, they have done quite well without it.

None of the literature, English, history, PE or government classes has contributed anything to my productivity.

You're setting up a false dichotomy. The issue is not about 1) no education whatsoever vs 2) education of any kind. The issue is general education vs on-the-job training. Which contributes the most to productivity increases? Some of that OJT includes learning new math skills pertinent to the job. You can beat your head against the brick wall of the truth all you want, but the evidence says that only OJT improves productivity. I'm sure that if 17th century English lit improved the productivity of auto workers GM would provide it.

Just ask yourself: would you be more productive over the course of your life if you were less educated? If you read less well would you be more productive? If you were not able to do math would you be more productive? If you couldn't understand what those around you were saying would you be more productive? Obviously and categorically not!

In fact if you were more educated you would be spending this very instant more productively because you would already have grasped the obvious and moved onto something else.

This issue is so obvious that I certainly can't waste any more time on it.

FiscalConservative, There are many studies showing that general education is a benefit of economic growth, not a cause. History demonstrates that, too. All you have to look at is which came first? And there is a very good study by McKinsey & Co which demonstrates than only OJT has any effect on productivity. That report is available on the McKinsey web site.

Perhaps I can shed some light on this conversation that seems to have ground to a halt: The BLS uses a shorter-term and narrower definition of productivity than the way it is used in policy discussions. It's fine for the BLS quarterly statistics. It doesn't help when you're concerned with a longer timeframe.

I hire recent grads for software development and, as many others in my field can attest, the lack of Math literacy among US graduates definitely is a damper on my firm's ability to develop product. The poor general education in this country is the cause of a lot of outsourcing of high-skill jobs. What do you think that does for productivity growth here at home?

fundamentalist - you "think" about economics with the religion-processing region of your brain which is why you're still stuck on the same dogma that you were years ago. One more reason why your economic predictions don't add up - you don't understand how the world works - and seem incapable of learning.

No point me trying to reason with a person who is incapable of reasoning. Have a good life.

an_open_mind, No I can't see the importance of education to productivity. Very little that is taught in public schools or colleges relates to the working world. Studies have proven that almost of the training the improves productivity takes place on the job. I'm sorry if you have been fooled by socialists who think public education is the answer to everything. It isn't. General education, such as we get in Kindergarten through college is the fruit of economic development; it is not the cause.

Besides, state interference in the educational system is the biggest problem with education. More state involvement, such as No Child Left Behind, will only make things worse.

You mentioned 21st century infrastructure. How do you get that without the state spending more?

Visit the BLS web site some day. They have great info on productivity. They identify three factors for improving productivity: 1) better equipment 2) better training (OJT, not general ed) and 3) organization, such as WalMart's business model of retailing.

You've been suckered by the left wing mainstream media into thinking public education and infrastructure will improve US productivity. They won't.

BTW, US productivity is among the highest in the world. Very few countries beat us and then in only specific areas. Japan, for example, has a slight lead in productivity in car manufacturing. It's a huge lie that the US suffers from low productivity.

fundamentalist - I think you're incorrectly categorizing my comments so that they fall in line with the simplistic ideological pathways your brain is used to following. But if you'll try to think laterally for a minute you'll see that my approach cuts across the silly old ideological boundaries.

I want a smaller federal government. Reagan pushed federal spending up to 23% of GDP in the mid-eighties, Clinton pulled it back down to 19% in the late-nighties. I want it to be well under 18% of GDP.

We can have much better education in this country with less spending at both the state and federal levels. We need better laws, regulations, standards and structures in our education system - not more money.

But if you can't see that the US economy will hasten its decline in global competitiveness unless we implement whatever policies are necessary to achieve world-class education standards then you need to get an education in the factors that increase productivity growth.

I see your point. Economists have talked about development quite a bit since WWII. The problem is that confusion reigns supreme in the field. Central planning was the dominant theory of development until the 1980's, and that's pretty much the philosophy your points on productivity follow. The "Washington Consensus" began to dominate, but not completely replace central planning in the late 1980's. It emphasized freer international trade. But people had tired of that, too, because it hasn't produced much success, either.

Cutting edge development economics revives Adam Smith and tells governments to get out of the way and enforce property rights. That was the big lesson learned from the former Soviet states transitions to market economies. Of course, Austrian economists have been telling people that for over a century, but Keynes convinced everyone to try central planning. The results were devastating for most poor countries.

In the US, the biggest hindrances to productivity growth are taxes, regulation and price inflation. Productivity growth happens when businesses purchase better equipment for their workers to use, such as computers and software that enable workers to produce more with less effort. Price inflation destroys the ability of companies to purchase such equipment by because they have to pay taxes on inflated (imaginary) profits instead of real profits. Companies use depreciation allowances to save money to replace equipment, but price inflation guarantees that the depreciated funds aren't sufficient to replace equipment.

The US has the second highest corporate tax rate in the world. That means companies have little money left after taxes to buy productivity enhancing equipment. And regulations add to the costs of doing business and leave even less money for investment.

If the US wants higher productivity, the guv needs to lower taxes, reduce his borrowing, roll back regulations (especially SOX), and quit trying to drown all of the world in worthless dollars.

How would our federal government spend our tax dollars if it was trying to increase productivity?
It would spend far less on defense, miscellaneous bureaucracy, farm subsidies, pork, bailing out banks, tax breaks to corporations that don't invest in America, etc.

It would invest (and/or encourage investment through tax policy, etc.) in the factors that cause the workforce to be more productive, such as:
- education that produces world-class graduates (not dropouts), lifelong learning, basic research, knowledge transfer, etc.
- 21st century infrastructure that reduces transportation/transmission/transaction costs
- tax policy that encourages saving, not consumption
- enforcing anti-trust laws so that we have a more competitive economy
- encouraging more entrepreneurship & small business formation - where most of the breakthrough productivity-enhancing innovations occur.

Any textbook on Development Economics has a chapter on Increasing Productivity. It's fairly obvious stuff but our politicians are mostly ignorant of it, and economists don't have models for it - so they ignore it.

fundamentalist - I don't know if productivity growth will overpower inflation. My point is that productivity growth matters far more than inflation. Period.

Unfortunately we have some policy makers who sacrifice productivity growth because they fixate on inflation, or because they cling to an absurdly simplistic ideology.

If we as a country made the necessary investments to increase productivity as fast as it can be increased (instead of viewing it as an exogenous variable that falls from the heavens like manna) we could stop dicking with the money supply (in this regard you and I are on the same side) and therefore inflation would remain under control too.

an_open_mind, So you think productivity growth will overpower inflation? That's possible. It happened in the 1920's and 1990's. The difference I see is that in the 20's the guv wasn't borrowing much and in the 90's he was on a diet. Also, productivity growth has been high lately, but it's mainly an effect of high unemployment. Low price inflation is mainly the result of idle resources. As employment picks up, productivity will fall back to normal levels and idle resources will be used up. I expect that to happen sometime next year when the major portion of the stimuli kick in like nitrous oxide.

So what's your bet on the elections. I'm hoping that the Republicans will retake Congress and give us blessed gridlock again. I have given up on good governance and am just praying for gridlock.

I agree. Putting aside Mr Geithner's verbal contortions, I suspect most US policymakers recognize the benefits of a weaker dollar for an economy operating far below full employment. And, as you say, fears of inflation are completely misplaced right now.

I think it was the Economist itself that has commented on the ill effects of clear-cut words by Japan's Finance Minister Fujii on Yen-Dollar rate back in September... So the Economist itself is engaged in double-talk it seems....

fundamentalist - no, no money involved.
Taking money from a libertarian who predictably over-fixates on inflation (at the expense of more salient economic variables - such as productivity growth) would be like taking candy from a kid ;)

We'll revisit after the 2010 elections. I'm taking bets on those too if you like...

an_open_mind, Dang you have a good memory! I'm always ready to backtrack if I need to. Was there money involved?

You could say that this time next year will be the end of 2010, so inflation could pick up then and still be consistent with my earlier forecast. But it has been almost 6 months since that prediction and things have moved faster than I thought they would.

fundamentalist - I hope you're not already conceding defeat on the bet you took:

[May 19th 2009 7:06 GMT
You're on, but perhaps we can make the rules a little more measurable: I bet that until the end of 2010 the monthly CPI will not exceed 3% for more than two months in a row.

I'm also willing to bet that we will have major healthcare reform by the end of 2012. Of course It will take much longer to get the healthcare sector below 18% of GDP, but eventually it will come down. That bubble will deflate, eventually.

In fact I'm willing to bet that healthcare will fall to 15% of GDP before we adopt the gold standard ;)
]

"Market-oriented exchange rates in line with economic fundamentals will be essential in assuring the resource and sectoral shifts to match and foster the new patterns of demand."

This point is perhaps most key to his discourse with other countries. Exchange rate changes do not pass through fully via pricing to trading partners. Sustaining demand via consumption substitution & adjusting patterns of cross country demand will be key. Opportunities for more profitable trading exist as market adjustments unfold.